Silver Price Forecast: Supply and Demand

The first catalyst for the silver price forecast is solid demand conditions for the shiny metal.
After a 70% decline from 2011 highs, silver found support at $15.00 during November of 2014. From the lows, silver has rallied eight percent—hitting $16.54 on May 5, 2015. Silver prices are supported by solid supply-demand conditions as of May, 2015.
Demand for silver comes from two sources: 1) fabrication, and 2) investment. Fabrication uses range from jewelry, to use as a semiconductor, to being a chemical compound. Conversely, silver investment demand comes from the buying of silver bars, coins, or exchange-traded funds (ETFs). Unlike gold, silver derives 77% of its demand from fabrication uses. (Source: Scotiabank, December 2014.)
Fabrication use can be further broken down into 68% for industrial use, 23% for jewelry, and nine percent for the remainder. Over the last couple of years, industry users have been “thrifting,” using less silver in manufacturing processes. However, the prevailing lower prices are likely to reverse this trend. (Source: Scotiabank, December 2014.)
Industrially, there are patches of growth. Silver use in electronics, such as in smartphones and tablets, is growing along with the industry. Silver is also making inroads in the battery market due to favorable characteristics over lithium alternatives. On top of that, about two-thirds of one silver ounce is used in the production of one solar panel. The growing ambitions of emerging markets, like India and China, to develop solar energy with the industrial use of silver are sure to benefit as a result. (Source: Scotiabank, December 2014.)
Moving forward, total silver industrial demand is expected to grow 27% by 2018. Despite what happens to investment demand, which is more dominated by investor sentiment, fabrication uses are not disappearing. (Source: Silver Institute, December 10, 2014.)
Overall, according to the Silver Institute, silver markets have been in a net deficit position with physical and investment demand being greater than supply since 2004. As of 2013 year-end, total supply stood at 978 million ounces, while physical demand stood at a 10-year high of 1,081 million ounces. (Source: Silver Institute, last accessed May 6, 2015.)
For 2015, demand will continue to outmatch supply, supported by strong investment demand, silver coin purchases, and continued ETF demand. On top of that, lower silver prices will encourage industrial users to restock.

Silver Forecast: Gold-to-Silver Ratio

The second catalyst for the silver prices in May 2015, and beyond, is the recent underperformance of the precious metal relative to gold.
The gold-to-silver ratio is simply the price of gold divided by the price of silver. With gold trading at roughly $1,192 an ounce and silver at $16.50, the ratio stands at 72.
The average for the ratio, since 1995, has been 65, with a maximum reading of 85 and a minimum of 32, reached on April 2011. Since their highs, it’s natural that silver prices have reverted to the long run average. But, current price levels suggest that silver is nearly 11% oversold, based on a long run gold-to-silver ratio of 65.
The chart below demonstrates the rapid increase in the gold-to-silver ratio, indicating silver’s severe underperformance.

Gold and silver prices are supposed to move in lockstep. However, since their peak of $1,923 an ounce in September 2011, gold prices have declined 40%. Silver, on the other hand, has dropped nearly 70%, from a high of $49.80 in May 2011, despite the favorable demand and supply conditions. Oversold conditions are bound to reverse eventually.

Silver Price Forecast: May 2015

The silver price forecast as of May 2015 is bullish. Silver prices continue to be supported by favorable supply and demand conditions. Moreover, recent underperformance points to oversold conditions.

Silver Price Forecast: Supply and Demand

The first catalyst for the silver price forecast is solid demand conditions for the shiny metal.

After a 70% decline from 2011 highs, silver found support at $15.00 during November of 2014. From the lows, silver has rallied eight percent—hitting $16.54 on May 5, 2015. Silver prices are supported by solid supply-demand conditions as of May, 2015.

Demand for silver comes from two sources: 1) fabrication, and 2) investment. Fabrication uses range from jewelry, to use as a semiconductor, to being a chemical compound. Conversely, silver investment demand comes from the buying of silver bars, coins, or exchange-traded funds (ETFs). Unlike gold, silver derives 77% of its demand from fabrication uses. (Source: Scotiabank, December 2014.)

Advertisement

Fabrication use can be further broken down into 68% for industrial use, 23% for jewelry, and nine percent for the remainder. Over the last couple of years, industry users have been “thrifting,” using less silver in manufacturing processes. However, the prevailing lower prices are likely to reverse this trend. (Source: Scotiabank, December 2014.)

Industrially, there are patches of growth. Silver use in electronics, such as in smartphones and tablets, is growing along with the industry. Silver is also making inroads in the battery market due to favorable characteristics over lithium alternatives. On top of that, about two-thirds of one silver ounce is used in the production of one solar panel. The growing ambitions of emerging markets, like India and China, to develop solar energy with the industrial use of silver are sure to benefit as a result. (Source: Scotiabank, December 2014.)

Moving forward, total silver industrial demand is expected to grow 27% by 2018. Despite what happens to investment demand, which is more dominated by investor sentiment, fabrication uses are not disappearing. (Source: Silver Institute, December 10, 2014.)

Overall, according to the Silver Institute, silver markets have been in a net deficit position with physical and investment demand being greater than supply since 2004. As of 2013 year-end, total supply stood at 978 million ounces, while physical demand stood at a 10-year high of 1,081 million ounces. (Source: Silver Institute, last accessed May 6, 2015.)

For 2015, demand will continue to outmatch supply, supported by strong investment demand, silver coin purchases, and continued ETF demand. On top of that, lower silver prices will encourage industrial users to restock.

Silver Forecast: Gold-to-Silver Ratio

The second catalyst for the silver prices in May 2015, and beyond, is the recent underperformance of the precious metal relative to gold.

The gold-to-silver ratio is simply the price of gold divided by the price of silver. With gold trading at roughly $1,192 an ounce and silver at $16.50, the ratio stands at 72.

The average for the ratio, since 1995, has been 65, with a maximum reading of 85 and a minimum of 32, reached on April 2011. Since their highs, it’s natural that silver prices have reverted to the long run average. But, current price levels suggest that silver is nearly 11% oversold, based on a long run gold-to-silver ratio of 65.

Gold and silver prices are supposed to move in lockstep. However, since their peak of $1,923 an ounce in September 2011, gold prices have declined 40%. Silver, on the other hand, has dropped nearly 70%, from a high of $49.80 in May 2011, despite the favorable demand and supply conditions. Oversold conditions are bound to reverse eventually.

Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners.